Will MOG Flounder Without Its Founder, or Is Cloud-to-Headphones Really The Answer?

One thing I realized as CNET’s senior editor of headphone, MP3 player, and music service reviews was that music hardware companies seemed to do well — even as music services went under, and friends, relatives, and heroes in the music business often had a hard time making ends meet, and music services went under.

That’s why it comes as no surprise that Beats Audio, a headphone company, acquired the music service MOG at a bargain earlier this year — and not the other way around, even as subscription services continue to grow (with positive ramifications for culture).

Headphones can be good, or stylish, or useful, regardless of what music you’re listening to — or whether you paid for it.

Beats, the stomping ground of music legends Dr. Dre and Jimmy Iovine is no longer home to David Hyman, the digital music veteran who founded the MOG service, which Beats bought for a $14 million song, reportedly less than investors had sunk into it. Hyman, whom we briefly disturbed for the purposes of this article, posted the following farewell to Facebook:

“MOG… my child, it’s been a long great journey. But like Sting said, ‘If you love something, set it free.’ You’re in good hands at Beats. I’m looking forward to my first real break since 1994. Nepal? Kauai? Taking a year off. Do not disturb.”

Although Hyman was reported to be sticking around in an advisory capacity, MOG now belongs to this pair of music execs, Iovine and Dre, who gained control of Beats Audio this summer after hardware manufacturer HTC sold them back a majority stake in part by loaning them $225 million:

Beats Audio co-founder Dr. Dre and CEO/co-founder Jimmy Iovine

What will happen to MOG now? Will it take on Spotify on the world stage? Or will it flounder and go under the way others have before it? We spot the following factors:

Big Bankroll

Not only the two men above, their strong sales to date (half the music fans on the NY subway seem to have Beats), but also HTC’s massive warchest could give Beats MOG the firepower to outlast Spotify in the race to make subscription music pay before running out of money due to royalty payouts.

Apple Doesn’t Care

On the day that Apple approved the Spotify iOS app for iTunes, it was clear that the Cupertino Giant wasn’t going to surprise everyone by fighting for the on-demand music subscription music service. Even if subscription services like MOG or Spotify succeed, people will still buy iOS devices in order to use them. Apple wins whether it runs the subscription service people use for that or not (and it can take 30 percent of subscription fees anyway).

Big Brand — And Right Brand

New York subways are as good a place as any to try to see which fashions or fads are sweeping the whatevers, and Beats Audio has great penetration there. It’s sort of ridiculous, actually.

In addition, Beats’ marketing is entirely focused on one thing: improving sound quality. Iovine and Dre have made it their new life’s mission to defeat the poisonous-chicken-and-poisoned-egg problem of music. The most popular headphones and speakers declined in quality just as early digital music formats degraded sound, the thinking goes, causing producers to aim lower, with crappy earbud headphones or even cellphone speakers in mind as listening formats.

As such, Beats meshes well with the brand of MOG, where David Hyman, a vinyl junkie, pushed the 320 Kbps format at MOG for years (the best MP3s can sound).

Music Is Too Expensive To Be Free, Too Free To Be Expensive

You can read about that here and here. Basically, it’s really, really hard to pay labels, artists, songwriters, and publishers what they deserve while competing with free, which is what any subscription music service has to do — even if that means competing with the free version of itself.

Vertical Integration: From The Cloud to the Ear Canal

So, you have a big brand (Beats) with an emphasis on sound quality, and a company that wants to make tens or hundreds of millions of people subscribe to music.

The magic trick, if Dre and Iovine can pull it off, will be to upsell Beats headphones users to subscribing, perhaps in a subsidized form, to whatever the future of MOG is. In much the same way that buying a two-year plan to AT&T or Verizon gets you a $450 subsidy on your new smartphone, perhaps buying two years of MOG could subsidize free or discounted headphones.

With David Hyman (who declined to be further disturbed on this topic) basking happily in Kauai or holed up in a Nepal temple of some kind, Iovine and Dre have free reign to sculpt MOG as they see fit, weaving it into the Beats Audio brand.

Only then can they realize their vision of selling access to high-quality streams and then literally pumping them into people’s heads — an end-to-end, vertically-integrated music service from the cloud to the ear canal.

Will it work? Well, I might put it this way: I didn’t think that many people would buy their headphones either.